Correlation Between LGI Homes and Beazer Homes
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Beazer Homes at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LGI Homes and Beazer Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and Beazer Homes USA, you can compare the effects of market volatilities on LGI Homes and Beazer Homes and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LGI Homes with a short position of Beazer Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Beazer Homes.
Diversification Opportunities for LGI Homes and Beazer Homes
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGI and Beazer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Beazer Homes USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beazer Homes USA and LGI Homes is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LGI Homes are associated (or correlated) with Beazer Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beazer Homes USA has no effect on the direction of LGI Homes i.e., LGI Homes and Beazer Homes go up and down completely randomly.
Pair Corralation between LGI Homes and Beazer Homes
Given the investment horizon of 90 days LGI Homes is expected to under-perform the Beazer Homes. But the stock apears to be less risky and, when comparing its historical volatility, LGI Homes is 1.25 times less risky than Beazer Homes. The stock trades about -0.02 of its potential returns per unit of risk. The Beazer Homes USA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,109 in Beazer Homes USA on August 24, 2024 and sell it today you would earn a total of 262.00 from holding Beazer Homes USA or generate 8.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LGI Homes vs. Beazer Homes USA
Performance |
| Timeline |
| LGI Homes |
| Beazer Homes USA |
LGI Homes and Beazer Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Beazer Homes
The main advantage of trading using opposite LGI Homes and Beazer Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Beazer Homes can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Beazer Homes will offset losses from the drop in Beazer Homes' long position.| LGI Homes vs. MI Homes | LGI Homes vs. Taylor Morn Home | LGI Homes vs. TRI Pointe Homes | LGI Homes vs. Beazer Homes USA |
| Beazer Homes vs. KB Home | Beazer Homes vs. MI Homes | Beazer Homes vs. Taylor Morn Home | Beazer Homes vs. Lennar |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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